Keurig's Cold Beverage Evolution Isn't Why It's Looking So Hot

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Green Mountain Coffee Roasters (GMCR) has brewed some big gains since announcing on Wednesday afternoon that Coca-Cola (KO) is investing $1.25 billion in the company behind the Keurig platform and striking a 10-year collaborative deal to get Coca-Cola's brands into the upcoming Keurig Cold maker of cold and carbonated beverages.

That's going to be special -- and the market loved the news by sending Green Mountain's shares upward Thursday and Friday on the news -- but something even bigger may be brewing at Green Mountain in a few months.

The leader in single-serve coffee is getting ready to roll out a new brewing machine in the fall. Keurig 2.0 has all of the functionality of the original platform that continues to lead the industry. Green Mountain announced on Wednesday that it sold a record 5.1 million brewers during the holiday quarter.

Its original coffee maker is going strong, but the new system could be even better.

Java 2.0

Green Mountain's original Keurig has a problem. The patents protecting the K-Cup portion packs that provide caffeinated blasts of coffee -- one cup at a time -- expired in late 2012. After years of scoring healthy margins on premium coffee refills, Green Mountain faces a future where anyone can put out K-Cups. It may have healthy working relationships with some of the biggest brands in the industry, but that could end at any time.

The patent expirations led Green Mountain to introduce Keurig VUE, a new brewer with an entirely new refill system. It hasn't sold well. Since it can't accept the original K-Cup portion packs, it's limited in the variety of flavors and beverages that it can brew.

Keurig 2.0 will solve that. It takes K-Cups. However, it will also be the first Keurig machine that also makes entire pots of coffee. Using new K-Carafe pods, the new brewers will be able to brew 28-ounce servings. More importantly for Green Mountain's bottom line, the new K-Carafe refills will be patent protected for a long time.

No Ordinary Joe

The media's buzzing about Keurig Cold and the possibilities for it now that Coca-Cola is on the bandwagon. The company that cornered the market for single-serve hot beverages will now be taking on SodaStream (SODA) in a battle for cold refreshments.

However, this will be a new market for Green Mountain to break into, and as potent a partner as Coca-Cola will be, there will still be a learning curve. It won't be an overnight sensation the way that Keurig 2.0 is. After all, if Coca-Cola is the top dog in soft drinks, can't the same be said about Kuerig premium partner Starbucks (SBUX)?

At the end of the day, Green Mountain is all about the coffee.

Besides, isn't it odd that Coca-Cola decided to make a 10-figure investment in Green Mountain? It could've just struck a licensing deal to give Keurig Cold a brew. Taking a 10 percent stake in Green Mountain is an investment in the coffee brand.

That actually makes more sense than Coca-Cola encouraging consumers to make their own soda at home. After all, Coca-Cola has spent heavily over the years to diversify away from its carbonated stronghold. It has acquired juice and water companies. It has expanded into energy and performance drinks. Coca-Cola is about all beverages, and evolution will eventually lead us to brewed beans.

Don't fall for the Keurig Cold hype. The machine to watch this year is Keurig 2.0.